Mehran Sugar Mills : Transmission of Quarterly Report for the Period Ended 2022-06-30

Quarterly Report June 2022

m e h r a n s u g a r . c o m

Quarterly Report June 2022

DIRECTORS' REPORT

On behalf of the Board, I am pleased to present financial results for the period ended June 30, 2022.

Operational Highlights	June 2022	June 2021
Crushing - M. Tons	856,944	682,253
Sucrose Recovery	11.16%	10.72%
Sugar Production - M. Tons	95,642	73,092
Molasses production - M. Tons	39,811	31,880
Molasses Recovery	4.65%	4.67%
Financial Highlights	June 2022	June 2021
(Rupees in Thousand except EPS)
Turnover	4,786,589	5,552,942
Sales tax	592,017	704,723
Gross Profit	866,353	642,543
Gross Profit margin	20.65%	13.25%
Profit before tax	344,828	393,340
Profit before tax margin	8.22%	8.11%
Net Profit after tax	259,422	263,154
Net Profit margin	6.18%	5.43%
Earnings per share	4.28	4.35

Following factors contributed to our operational and financial results:

• Due to relatively larger crop, prudent cane procurement and increased supply from within gate areas, sucrose recovery improved to 11.16% from 10.72% of previous year. This enabled for relatively better and consistent crushing.
• Gross profit margin increased due to lower cane procurement cost and better sucrose recovery. Good volume of molasses and Bagasse sales also allowed for this contribution.
• The reduction in Bagasse consumption as compared to last year because of further investments made in steam efficiency and electrical savings. The company intends to invest more in efficiency to attain further savings, which is now an important feedstock for other industries/sectors.
• Unicol's share of profit continue to remain impressive and amounted to Rs.388.97 million during this period.
• Dividend income from equity investments amounted to Rs. 85.10 million which is 47% more than compared to corresponding period of last year. This was larger due to the defensive nature of investments, which were switched to higher yielding investments. However, a large loss of Rs. 198.103 Million was booked on account of loss on disposal and lower valuations of investments due to the prevailing economic condition.

Mehran Sugar Mills Ltd.

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• Finance costs also increased substantially due to a higher of short-term borrowings as our quantity of sugarcane crushed increased and on account of increase borrowing rate. Almost 100 percent increase in the cost of borrowing from last year also played a major impact.

SEASON 2021-2022

Season 2021-2022 proved to be a larger crop compared to the previous 3 years. However, increase in the minimum support price by 24 percentage from the previous year to Rs.250 per 40 kgs plus QP by GoS became an anomaly since the price of sugar cane in Punjab was notified at Rs. 225 per 40 kgs. Such a large price difference of 10 percentage in different parts of the country created difficulty for mills in Sind, as they were rendered uncompetitive in the market.

Despite the higher crop expectations sugarcane harvesting remained slow in the initial period as growers expected higher prices. This prompted an unusual and abnormal increase in sugarcane price up to 30 percentage higher than the support price announced by the government.

This initial increase in pricing subsided as the season progressed. An improved supply brought stabilization in sugarcane price. However, due to the higher notified price and initial market buying the overall cost of cane in Sind remained substantially higher than Punjab.

Prompt payments to growers have now become a norm in the industry and thus created large requirement of liquidity. With increased mark up rates, our finance cost has also increased substantially and thus the overall cost of sugar production. The finance cost due to short-term working capital requirements has now become a major cost component alongside sugarcane and salaries.

In season 2021-2022, the final sugar production of 7.9 million tons was 38 percentage higher than the previous year. This production has been recorded as the highest ever in the history of sugar production in Pakistan whereas national sugar consumption is expected at approximately 6.5 million tons.

The highest ever production has created a surplus of approx. 1.5 million tons. Sadly, export permission is not being given due to the political uncertainty in the country. The exports of sugar can not only brings in valuable foreign exchange of approximately USD 1.0 Billion but also more importantly stabilise sugar prices, which are important to allow an equilibrium pricing between sugarcane and sugar prices for this year.

Rebalancing the requirement of sugar and thus stabilising the market is also imperative considering that the season 2023 initial survey points to a slightly larger crop size, which would again mean a surplus. In such a season ensuring sustainable sugarcane, prices to the farmer are critical so that overall sugar production numbers do not reduce in Pakistan.

UNICOL LIMITED

The Company's performance continued to remain commendable during the period. Bullish trend and gas shortages in Europe coupled with political turmoil in Ukraine created fresh demand for ethanol and improved selling price. Plant performance remained satisfactory.

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The increased availability of molasses due to larger sugarcane crop at competitive prices during the season also proved beneficial. This phenomenon enabled the company to secure its sales commitments for the entire year.

Profit before tax for Unicol was Rs.1,294 million as compared to Rs.501 million in the same period last year. The profitability for the remaining period of the year is expected to further improve substantially because of higher ethanol pricing and better currency valuations.

Unicol continues to pay a quarterly dividend, which augurs well for our cash flows.

Following are the key data related to Unicol Ltd:

Financial Highlights	Units	June 2022	June 2021
Sales	Rs. in '000	7,060,637	5,700,709
Gross profit	Rs. in '000	1,810,499	931,129
Gross profit %	%	25.64%	16.33%
Profit before tax	Rs. in '000	1,294,135	501,614
Profit after tax	Rs. in '000	1,164,592	444,097
Net profit %	%	16.49%	7.79%
Earnings per share	Rs.	7.76	2.96

UNI-FOOD INDUSTRIES LIMITED

The business has been finally disposed-off after shareholders approval in the extra ordinary general meeting held on June 29, 2022. The Share Sale Agreement has been executed and it is expected that sale consideration shall be received in 4th quarter after completion of legal formalities. Losses suffered by the company have already been accounted for in our books and no further charge is expected to book on account of disposal.

FUTURE OUTLOOK

Pro Grower policies during last few years have brought better returns on the crop. As a result, continuous improvement is visible in plantation of sugarcane. This trend is encouraging and needs to be appreciated. However, the major focus of the industry has to be towards improving farm productivity and yields as availability of additional land for farming is limited. An improved farm yield will allow larger volume of sugarcane. This would improve farmer economics and allow mills to attain better capacity utilization in years to come. In line with this approach, Mehran has also planned investment in sugarcane development from this year. Various measures are taken to assist growers for attaining this objective.

While cane development is of utmost importance to the industry. We also feel that the government intervention has to reduce. However, due to lack of focus on the matter, we are yet to see any development on the Policy framework from Governments regarding sugarcane and sugar pricing. This matter is being discussed for long time without any result and is proving a hindrance to the development of this sector. We look forward to an early resolution of this matter for bringing mutual benefits to the Government, growers, millers and consumer in the long run.

Mehran Sugar Mills Ltd.

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